Audit and Assurance Practice Exam

In testing controls over whether sales are properly valued, what procedure could the auditor take?

1. Sampling recorded sales invoices and agreeing the price to an authorized price list.

2. Reviewing customer feedback on pricing satisfaction.

3. Implementing more rigorous internal control measures.

4. Conducting market price comparisons for future sales.

The correct answer is: Sampling recorded sales invoices and agreeing the price to an authorized price list.

The procedure of sampling recorded sales invoices and agreeing the price to an authorized price list is a direct method to test controls over the valuation of sales. This approach allows the auditor to verify that the prices charged to customers are consistent with the agreed-upon prices in the company's price list. This is crucial because an effective control in the sales process ensures that discounts, markup adjustments, and pricing errors do not affect financial reporting. By performing this procedure, the auditor assesses whether there is a reliable process in place to maintain pricing accuracy, which is essential for proper revenue recognition and overall financial statement integrity. This method also helps identify any discrepancies between recorded sales and established pricing policies, which could indicate a failure in internal controls if significant issues are found. Other alternative procedures, like reviewing customer feedback or implementing internal controls, do not provide the same direct assurance regarding proper sales valuation. Similarly, market price comparisons for future sales focus on future transactions instead of validating current sales prices.